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Lawmakers could raise rates for Citizens Insurance customers

Rocked by a series of corporate scandals — and with its CEO facing a tough confirmation hearing — Citizens Property Insurance Corp. has gone increasingly positive with its messaging in recent weeks. The company says it has done a superb job of reducing risk over the last year, and the chance of “hurricane taxes” has plummeted by 43 percent.

That message clashes squarely with the apocalyptic warnings echoing through the Florida Legislature, where lawmakers are using “tough medicine” themes to push a bill that would cause insurance rates to skyrocket.

Lawmakers, espousing the doomsday rhetoric of the insurance lobby, say Florida is one hurricane away from financial destruction, and shrinking Citizens by raising rates is the fiscally prudent thing to do.

Citizens made similar arguments last year, but of late the company has backpedaled from much of its austerity message and measures. Policy changes last year, while unpopular, have helped Citizens to shrink rapidly, removing much of the threat that Floridians will have to bail the company out after a storm.

By the time hurricane season rolls around, Citizens “will have reduced assessment potential for Floridians by $3 billion, or 43 percent,” CEO Barry Gilway told lawmakers this week during a confirmation hearing to keep his job. “Now, I want to repeat those numbers, because it’s huge.”

It’s a much different message from the one coming from reform-minded lawmakers in Tallahassee.

“If the hurricane doesn’t even go through your area, your constituents will be assessed upwards of between $2,000 and $5,000 per year,” Sen. David Simmons, R-Altamonte Springs, told lawmakers Wednesday.

In presenting his bill, Simmons used figures from 2012, before Citizens reduced exposure drastically. Citizens clarified that the numbers used by Simmons were inflated.

But gasp-inspiring warnings about billion-dollar “hurricane taxes” are nothing new in Florida, part of the showmanship required to pass property insurance bills in the Legislature.

Each year, lawmakers and the business lobby pitch rate increases at Citizens, warning of the “Big One” and the financial wreckage it would cause. But because Florida has dodged hurricanes for seven years, Republicans from coastal regions have joined Democrats to kill bills that would raise homeowners’ insurance rates.

SB 1770 could break that trend, despite the fact that it could bring hundreds or thousands of dollars in higher insurance costs for homeowners. It passed its final committee Wednesday in a unanimous vote.

Included in the complicated, 92-page bill, among other measures:

Citizens’ rates must be “actuarially sound,” include an appropriate “risk load factor” and not compete with the private market. Each of those three measures could mean rates at Citizens increase much faster than 10 percent, the current cap on rate hikes.

• Rates for some second homes and new policyholders at Citizens must be higher than the rate charged by the top 20 private insurance companies, leading to large premium hikes for thousands of homeowners.
• Insurance companies may charge higher rates to cover additional reinsurance purchased for a potential catastrophic hurricane.

In parts of South Florida and Tampa Bay, Citizens rates are technically “underpriced” by 90 percent or more. Under SB 1770, homeowners in those areas could see insurance premiums — which already average more than $2,500 — double.

The idea, Simmons said, is to reduce Citizens’ size and risk and make it less likely that Floridians pay “hurricane taxes” after a major storm.

Citizens has been able to accomplish much of that without new laws from the Legislature. Citizens has not officially endorsed SB 1770, though parts of the bill include ideas from the state-backed insurer.

For consumers, the drastic shrinking of Citizens’ size and risk over the last year has not been pain-free.

The company raised insurance costs on homeowners by more than $450 million last year, while reducing billions of dollars in coverage. It also leveraged its $6 billion surplus, paying private insurance companies millions of dollars for taking over its policies and providing reinsurance. Citizens has paid tens of millions of dollars to private reinsurers to help hedge against the type of hurricane disaster that happens only once in a century.

The Legislature has helped as well, replacing a rate freeze with a 10-percent annual cap on rate hikes in 2009 and passing sweeping reforms to reduce the runaway costs of sinkhole claims in 2011.

Citizens’ sinkhole “loss ratio” has plummeted by two-thirds in the last year and the overall “rate gap” has shrunk by more than half since 2010.

As Citizens has moved closer to “rate adequacy” in recent years, homeowners have faced billions of dollars in premium hikes. SB 1770 would accelerate the transition to market rates at Citizens.

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